Renewal Community Program

The Renewal Community Initiative offers tax incentives to attract businesses to the designated area. These benefits consist of:

Wage credits for employing RC residents;

Additional Section 179 deductions;

Deductions for revitalization expenditures (up to $12 million per RC);

Zero-percent capital gains tax rate on qualifying assets held for more than 5 years.

By marshaling the support and commitments of key players in State and local governments and forming alliances with businesses and local community-based organizations, the Renewal Community Initiative offers Federal incentives and other benefits. The initiative does not provide Federal funds.

By encouraging job development and retention, the RC Initiative helps residents gain employment, succeed in their jobs and become economically self-sufficient. The increase in business activity that results from these actions will provide economic growth and benefits to the RC and the surrounding community.

State and local governments have developed and implemented a Course of Action. This plan shows how the governments and local organizations will perform the following within the RC:

Increase local services;

Implement crime reduction strategies;

Act to reduce or remove government requirements;

Increase involvement in economic development activities, promote the giving or selling at below fair market value, of surplus real property in the RC.

Alliances must be developed with local businesses, nonprofit entities and community groups to provide jobs, employment services and social services.

Renewal Community Tax Incentives for Businesses

Wage Credits:

Renewal Community Employment Credit (RC Wage Credit) Credit against Federal taxes of up to $1,500 during each year of RC designation for all existing employees and every new hire living in the RC. (See IRS Form 8844)

Work Opportunity Tax Credit (WOTC)Credit of up to $2,400 against Federal taxes for businesses for each new hire from groups that have high unemployment rates or other special employment needs, including youth ages 18 to 24 and summer hires ages 16 to 17 who live in an RC. (See IRS Forms 5884 and 8850) Visit the United States Department of Labor website. Business does not have to be in a RC to qualify for the WOTC.

Indian Employment Credit Credit against Federal taxes calculated on wages of up to $20,000 for each qualified employee who is an enrolled member of an Indian tribe (or spouse of an enrolled member) who lives on or near an Indian reservation. Available for existing employees and new hires. (See IRS Form 8845)

Deductions:

Increased Section 179 DeductionAllows a business to claim an increased Section 179 deduction (up to $35,000) if it qualifies as a Renewal Community Business. Can be claimed on certain depreciable property such as equipment and machinery. (See IRS Tax Form 4562) Visit the IRS website.

Commercial Revitalization Deduction Deduction of either one-half of qualified revitalization expenditures (QREs) in the first year a building is placed in service or all QREs on a prorated basis over 10 years if QREs have been allocated to revitalization of a commercial building located in an RC. (See IRS Publication 946)

Environmental Cleanup Cost Deduction (Brownfields) Businesses can elect to deduct qualified cleanup costs of hazardous substances in certain areas (brownfields) in the tax year the business pays or incurs the costs.

Depreciation of Property Used on Indian Reservations Special accelerated depreciation rules apply to qualified property placed in service on an Indian reservation after 1993 and before 2004. Certain public infrastructure used or located off the Indian reservation also qualifies. (See IRS Publication 946)

Bond Financing:

Qualified Zone Academy Bonds (QZABs) State or local governments can issue bonds at 0 percent interest cost to them to finance public school programs with private business partnerships. Private businesses must contribute money, equipment or services equal to 10 percent of bond proceeds (which may qualify as a charitable contribution). The Federal Government pays interest in the form of tax credit to banks, insurance companies and certain lending corporations that hold QZABs.

Capital Gains:

Zero Percent Capital Gains Rate for RC Assets The holder, for a minimum of 5 years, of an RC asset acquired between January 1, 2002 and December 31, 2009, will not have to include in its gross income any qualified capital gain from the sale or exchange of the asset.

Other Incentives:

New Markets Tax Credit Equity investors in qualified Community Development Entities (CDEs) can obtain a tax credit against Federal taxes of 5 to 6 percent of the amount invested for each of the years the investment is held, for up to 7 years of the credit period.

Low-Income Housing Tax Credit (LIHTC) Ten-year credit against Federal taxes for owners of newly constructed or renovated rental housing that set aside a specified percentage of units for low-income persons for a minimum of 15 years. The credit varies for new construction and renovation. (See IRS Tax Form 8609)

Two of the RC incentives - Increased Section 179 Expensing Deduction and Zero Percent Capital Gains for RC Assets - require that the business meet the definition of "Renewal Community Business" in order to qualify for the incentive.

What is a Renewal Community Business?

In general, a Renewal Community Business is a corporation, partnership, or sole proprietorship that, for each taxable year, meets the following tests:

Except with respect to a sole proprietorship, every trade or business of the entity is actively conducted in the RC (legally separate entities are not aggregated with related entities for these tests).

At least 50 percent of the total gross income of the entity is derived from the active conduct of business within the RC.

A substantial portion of the use of the tangible property of the entity (whether owned or leased) is within the RC.

A substantial portion of the intangible property of the business is used in the active conduct of the business.

A substantial portion of the services performed for the employer by its employees occur within the RC.

At least 35 percent of the employees reside in the RC.

No more than 5 percent of the property is non-qualified financial property (such as debt, stock and various financial instruments) except for reasonable amounts of working capital held in cash, cash equivalents, or debt instruments with a term of 18 months or less and certain accounts receivable arising from sales of inventory.

No more than 5 percent of the property is works of art or other collectibles unless held for sale to customers.

Visit HUD website for more information on properties located within the Renewal Community Zone.